Lowest Mortgage Rates Driving Start of Housing Market Recovery?

This column generally concentrates on analyzing trends in future and current mortgage rates. But these rates are only one part of the picture that homeowners, and home buyers, need to hold in view when making purchase or refinancing decisions.

The other elements are the availability and prices of residential real estate. These are especially important to first-time buyers, who ideally want to purchase at a time of lowest mortgage rates and lowest house prices. But they're also critical to those whose mortgage loans are currently underwater.

Existing Home Sales Rose in 2009--Really

The New York Times reported that sales of existing homes rose last year for the first time since 2005. It knew that many readers would find that assertion incredible, so it ran the piece under the headline: "Believe It or Not, Existing-Home Sales Were Up in '09".

But it's true. In all, 4.6 million existing homes changed hands last year, up five percent on 2008.

But there is a downside to this cheering news. Although some of the sales were likely driven by the lowest mortgage rates in 50 years, a large proportion of them were a result of lower prices. At $173,200, the median sale price in 2009 was down nearly 12 percent from the previous year's $196,600. Worse, over the last four years, the median sales price has dropped--adjusted for inflation--by 28 percent.

While new-home sales will remain low due to a lack of construction, existing-home sales are projected to rise to around 5.6 million in 2010. For several months now we've been seeing stabilization in all of the home price measures as inventory is pulled down. As a result, the housing wealth for many middle class families has begun to stabilize.

...There are easily understood swings in contract activity as buyers respond to a tax credit that was expiring and was then extended and expanded. These swings are masking the underlying trend, which is a broad improvement over year-ago levels. December activity was the fifth highest monthly tally in two years.

Foundations of New Home Sales Undermined

According to the Times piece, new home sales are at their most buoyant when interest rates (including mortgage loan rates) are low, and the economy strong. Take away either of those elements, and residential real estate construction comes to a grinding halt.

And that's what happened. Owing to the poor economy last year, new home sales were at their lowest since records began in 1963.

Underpinning a Recovery?

Home builder D.R. Horton, however, reported that its tally of new orders and completed sales in its first fiscal quarter rose significantly. This surprised analysts, one of whom (Michael R. Widner of Stifel Nicholas) told Forbes:

It's good to see someone in the sector turn profitable again, and we should see the rest of the group follow in the next couple of quarters. The next thing to look for will be going from marginal profitability to truly solid earnings. It's still a ways away given unemployment and excess housing on the market--foreclosures haven't gone away yet--but we're headed in the right direction.

Best Mortgage Rates + Housing Recovery = Act Now

This column has consistently urged first-time buyers and those thinking of refinancing to act quickly before the best mortgage rates for half a century begin their virtually inevitable rise. But first-time buyers in particular are also vulnerable to the higher home prices that a housing market recovery is likely to bring.

If you've been putting off buying your first home, now may be the time to act. Compare mortgage quotes today.